GDP contraction is projected to be less severe than previously estimated based on a recovery among Thailand's Asian trading partners, without factoring in domestic political turbulence, says the Fiscal Policy Office (FPO).
The FPO's latest economic forecast upgrades GDP contraction this year to 7.7% from a 8.2% decline projected in July, said Pornchai Theeravet, deputy spokesman of the Finance Ministry.
A 7.7% full-year GDP contraction is the median of a range of 7.2-8.2%. The FPO previously anticipated the economy to contract by 8.5% in 2020.
GDP shrank by 12.2% year-on-year in the second quarter, the biggest decline since the aftermath in 1998 of the 1997 Asian financial crisis. The first-quarter GDP contraction was 1.8% year-on-year.
The main factor supporting an upgrade is Thailand's trading partners, particularly China and Vietnam, have seen a clear economic recovery, lending support for Thai exports, said Mr Pornchai.
Exports are projected to record a full-year contraction of 7.8%, up from an 11% decline projected previously, according to the FPO.
Resumed global economic activity after being drastically hit by the Covid-19 crisis also contributed to the FPO's economic forecast revision.
An upgrade to the FPO's forecast is similar to how the Bank of Thailand has revised up its full-year economic outlook to a 7.8% contraction from a 8.1% decline.
The outlook assumes that government stimulus measures encourage public spending and the special tourist visa scheme propels recovery momentum and improves domestic consumption, according to the central bank.
"Such forecast does not factor in domestic political factors because current developments have not yielded an impact on economic activities," said Mr Pornchai.
The first wave of anti-government protests were held in February this year before the Covid-19 outbreak brought the movement to a halt.
However, youth-led demonstrations have emerged since the middle of July, with their demands centred on the resignation of Prime Minister Prayut Chan-o-cha, constitutional amendments and reform of the monarchy.
Public investment and public consumption are factors supporting the economy this year, with public investment expecting to expand by 10.5% and 4% for public consumption, according to the FPO.
The economy is forecast to expand by 4.5% next year driven by a recovery of exports and private consumption, with public expenditure worth around 3.2 trillion baht helping to propel the growth impetus, he said.
The main downside risks to the growth outlook are a renewed Covid-19 outbreak, uncertainty over the US presidential election, Brexit and the fragile global financial system, said Mr Pornchai.
In related news, the Thai Credit Guarantee Corporation has been permitted by the Bank of Thailand to provide loan guarantees to SMEs for 3-10 years for 57 billion baht in soft loans.